Hedge funds started in China in the early 1990s, and has so far undergone four stages: infancy, formation, mindless rush, and adjustment & standardization.

Currently hedge funds in China fall into two categories. One is those companies backed up by the government, including brokers managing pooled property, trust and investment companies’ trust and investment projects, and investment companies managing their own capital. The other is private hedge funds that have nothing to do with the government, although it’s not clear whether they are legitimate or not. Under the name of “Investment Consulting Company” or “Investment Management Company”, they provide management for pooled property.

Against the background of China’s heavily growing economy, the number of hedge fund investors is increasing rapidly in the country, and the total amount of their wealth is increasing in step. By the end of June 2008, China’s residents had RMB19,460bn ($2,820bn) in bank deposits, of which 80% was in the name of 20% of the population. With such a huge amount of cash assets in hand, the wealthy’s strong investment demand has provided hedge funds in China with a sufficient supply of capital. In addition, China’s companies also have a huge sum of spare cash, which is also a primary source of capital for hedge funds.

Data showed that hedge funds account for 0.6% of the GDP in the U.S., 0.35% in Europe, 0.2% in Asia, while only 0.1% in China. It is expected that China’s GDP would quadruple in 10 years time and hedge funds would be about 0.4% of the country’s GDP. In this case, China’s hedge funds would expand 12-fold, and place China second in the world for hedge fund investments.

This report elaborates on the operational environment, development, and niche markets of China’s hedge fund industry, in addition to the comparison of the business operations of the top homegrown and foreign hedge funds in China. Where necessary, the report also analyzes the problems and development trend of China’s hedge fund industry.